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If you've been following the MBS Commentary, you know what a big deal this afternoon could be. Markets have been preparing for it for weeks and MBS Live members have been on top of those movements every step of the way.

This afternoon, when markets are convulsing mere milliseconds after the Fed Announcement, MBS Live members will know what's going on before anyone else. The accuracy and speed of our real-time price stream and alerts is unmatched.

Bond markets coasted into the domestic session in marginally improved territory ahead of this morning's economic data. A look at the overnight trading builds the sense that there was indeed some "pressure release" after yesterday's Fed Announcement arrived without any material changes in policy. The entirety of the post-FOMC trade in 10yr yields looks like a hang-glider being pushed off a small cliff, but who catches his balance and levels off before crashing. Stocks and bonds were unified in this leveling off movement, however, which does more to suggest a microscopic unwinding of the "great rotation" trading themes that seem to have been in play recently (money out of bonds, into stocks, general "risk-on" stuff and jives well with the 'stock-lever' being connected). Here's a chart of the metaphorical hang-glider's path so far this AM:

Note the bumpy landing! Credit technicals for initially pulling yields back up, with the bigger spike due to the better-than-expected Chicago PMI data. This series has a tendency to produce bigger spikes at 9:42am when the data is made available to subscribers (3 minutes ahead of the 9:45am official release). Bond markets have actually done a good enough job shrugging the data off to suggest intermediate-term technical ranges are strong heading into NFP. The only downside here is that the ceiling bounce this morning merely occurred at the mid-point of what we see as an upwardly sloped trend-channel. That said, there's also a case to be made for horizontal inflection points just over 2% with 1.97 on the low end. Here's a look:

The implication for MBS has been a mostly unchanged morning, coasting along the lows of the day, but still in line with yesterday's highs.

MBS Pricing Snapshot

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.

Below is a recap of instant Reprice Alerts and updates issued via email and text alert to MBS Live subscribers this morning.

10:15AM :
ALERT ISSUED:Early Lenders Already Facing Reprice Risk

Though there are precious few lenders who release rates early enough to be affected, any rate sheets that were out before 9:43 are already at risk of negative reprices. Bond markets have been sliding into weaker territory since then with 10's now over 2.0 and Fannie 3.0s down 4 ticks on the day at 103-05.

- Reaction: whether or not the first hit of weakness at 9:43 had anything to do with this report, we don't know, but now that the report is out, it's clearly adding to negative momentum so far, lifting stocks and TSY yields, hurting MBS prices. Of particular interest is the much-stronger employment component a day ahead of NFP. Officially trending weaker this morning now...

The Chicago Purchasing Managers reported the Chicago Business Barometer accelerated 5.6 to 55.6, its highest level since April 2012. The Business Barometer advanced amid broad gains in Production, New Orders, and Employment. Five of seven business barometer indexes gained, but inconsistent with the expansionary theme were declines in Supplier Deliveries and Prices Paid

9:51AM :
ALERT ISSUED:No Longer Pleasantly Flat

Just to remind us who's boss, markets are no longer 'pleasantly flat,' as volume and selling pressure spiked minutes BEFORE the Chicago PMI report that we thought might provide a challenge to the morning's supportive ceilings in 10yr yields and floor in MBS. We'd like to think (as would the SEC), that the much stronger than expected Chicago PMI numbers didn't have anything to do with the initial spike (how could they, right? unless word got out a few minutes early... Just sayin... the volume pop in 10yr futures was something other than simple momentum building in response to a morning stock rally).

Whatever the case, MBS swung 2 ticks lower fairly quickly and 10's hit 1.9975, where they currently threaten to ratchet higher yet again. Heading in the wrong direction so far...

9:44AM :
Pleasantly Flat For A 'Day Before NFP.' Technical Challenges

We had a good thing going... There was a nice technical surge in volatility beginning with yesterday's overnight session. Until then, using 10yr yields as a benchmark for broader 'bond market' trends, we'd been doing a fair enough job of holding under 2% with 7 separate hours finding a supportive ceiling there.

That changed in the overnight session between Tuesday and Wednesday, with volatility clearly increasing. Whereas yields edged up in a tight pattern over 3 hours heading into 2% on Tuesday afternoon, the break to 2.02 in the Asian session took only 30 minutes.

Things continued to be "spiky" from there with additional weakness in the European session taking 10's almost to 2.04 before the big GDP headline miss provided a brief correction to 1.974 as the lowest intraday tic in 10yr yields. We've seen these 1.97+ levels come into play quite a lot since the beginning of the year when January's NFP made for a pop to 1.976 up from previous highs near 1.92. Before yesterday, it also got some air time as a pivot point on Monday and Tuesday.

And now this morning, 1.97 has turned away an otherwise amicable bond market rally. The more optimistic scenario would have been to see something closer to 1.95 in order to establish a more balanced indecision heading into NFP tomorrow. The day is young, however, and it's not out of the question.

In the case that we revisit 1.97, a break lower would be a moderately reassuring technical development, though without an unexpected source of motivation, 1.95 would likely be a challenge. On the weaker side of the coin, we've thus far found support at yesterday's closing levels, but both MBS and Treasuries are right back on that doorstep.

To bring this all back to MBS, the 1.97 level in Treasuries would equate roughly with 103-14. The rejection brings us back to 103-09 at the moment, just 1 tick higher than yesterday's close. at 1.9867, 10yr yields are similarly close to their latest levels yesterday at 1.992. Between there and 1.972 sets up the short term range.

As of now, we look like we're set to test the weak side of the range, with perhaps the 9:45 Chicago PMI helping to nudge us over the edge or back toward more equivocal safety. Either way, we've thus far been pleasantly flat for the day before NFP.

Personal income in November and December was boosted by accelerated and special dividend payments
to persons and by accelerated bonus payments and other irregular pay in private wages and salaries
in anticipation of changes in individual income tax rates. Personal income in December was also
boosted by lump-sum social security benefit payments. In October, personal income reflected work
interruptions caused by Hurricane Sandy. Excluding these special factors, discussed more fully below,
DPI increased $44.1 billion, or 0.4 percent, in December, following an increase of $66.5 billion,
or 0.6 percent, in November.

- Claims 368k vs 350k Consensus, 330k previously
- Continued Claims 3.197 million vs 3.176 consensus
- Markets were expecting a higher number, and though it was even higher than expected, seasonal adjustments played a big role and make the miss easier to shrug off.
In the week ending January 26, the advance figure for seasonally adjusted initial claims was 368,000, an increase of 38,000 from the previous week's unrevised figure of 330,000. The 4-week moving average was 352,000, an increase of 250 from the previous week's unrevised average of 351,750.

The advance seasonally adjusted insured unemployment rate was 2.5 percent for the week ending January 19, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending January 19 was 3,197,000, an increase of 22,000 from the preceding week's revised level of 3,175,000. The 4-week moving average was 3,192,250, a decrease of 9,750 from the preceding week's revised average of 3,202,000.

Craig LaBruno : "I actually locked 99% of my active pipeline last Friday when things started getting out of hand which so far seems to have been the right move but for the few loans I took this week and 1 or 2 loans (the other 1%) that I did float through last Friday I will continue to float through the NFP numbers unless we get some sort I of ridiculous unexplainable rally today which is highly unlikely to happen."

Matthew Graham : "can I interest anyone in a technical rejection of 1.97% in 10s?"

Victor Burek : "one of the best econ calanders out there"

Victor Burek : "tim..you can pull up the eoncomic calander, click the link at top "tomorrow" and it shows the consensus"

Victor Burek : "depends on how the day plays out...if we rally big today, might lock some..but more than likely i will float"

tim paxton : "what is the consensus on the number?"

Oliver S. Orlicki : "vb, floating into NFP?"

Oliver S. Orlicki : "nfp is going to be HUGE tomorrow"

Andrew Horowitz : "buyers still don't want to get out front of the nfp number it seems"

Victor Burek : "data been going our way lately, all we need is nfp to continue the streak"

About the Author

A former originator, Matthew began writing for Mortgage News Daily in 2007, covering a wide range of topics. Seeing a need in the marketplace, his focus increasingly shifted toward relating MBS and broader financial markets for loan originators.
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